There has been a lot of talk recently about going back on the gold standard for American currency. The state of Georgia has introduced a law that would require all citizens pay their state taxes in gold backed currency. Add this to the calls by Ron Paul and Glenn Beck to put us back on the gold standard in order to fight off the Federal Reserve from "further destroying wealth." Glenn Beck has turned into a great spokesperson for buying gold coins against the coming apocalypse. Ron Paul went on the Colbert Report in order to debate the merits of a gold backed currency against the floating currency we presently employ. The basic argument is that gold is more valuable than paper, and will hold it's value more into the future. By making our currency free floating, the government can increase or decrease the value of said currency to meet political and economic ends. These individuals are basically pissed that the Federal Reserve created inflation over a lengthy period of time causing the value of the dollar to decline, something that they argue would not happen if we were on the gold standard still. (As an aside, the current rate of inflation is actually really low.)
I'm of the opinion that returning to the gold standard is kind of a dumb idea for a variety of reasons. For one, it would completely derail the modern economy, there is simply not enough gold to properly back the amount of money that we use as a society. Furthermore, there are still plenty of issues to be had with using gold. For one thing, the value of gold would not be determined by the United States but more by the mining capabilities of Russian and African mines. Most of the world's gold comes from those regions and they are the determining factor in it's value. Yes we do have gold in the United States, but not so much that we will be determining its value. Secondly, switching to the gold standard would likely diminish our own purchasing power. The value of the dollar would likely increase greatly, but so would the costs of things, diminishing our ability to consume all of the nice stuff we like. It would also diminish capital in all likelihood making investing in new businesses and ventures all the more difficult further decreasing our ability to economically expand at the same levels as our international counterparts.
As for the belief that switching to a gold standard will somehow limit the federal governments ability to tamper with the value of money is just flat out fantasy. Assuming that we go on the gold standard and we still keep the Federal Reserve, which we would still likely do because it stabilizes banks across the country (which is good), there would still be currency manipulation. The Fed could still buy up gold to drive up the price or flood the market with gold to lower the price. People in Congress could decide to peg the value of the dollar to a different amount of gold depending on the circumstances. They could even make the gold less pure, diluting it with copper, making it easier to produce more gold bars to back the currency. All of the same stuff that we do now with paper currency can be done with gold currency.
One of the things about the interview done on the Colbert Report that struck me was how anachronistic this conversation sounds. This is an argument from the 50's. We live in an age where the money we use is digital, held on pieces of plastic. Open your wallet and see how much cash you have on hand. (This task is directed more towards my contemporaries and less towards older people who still carry around money for no reason. It makes more sense to keep as much cash as possible earning interest at all times.) The plastic may not even be necessary any more with the advent of internet shopping, all I need to do to purchase something is to punch a couple of numbers into an interface and suddenly I have bought something physical. I've taken the intangible and made it concrete. Does my bank have the physical cash on hand to cover all of my purchases? Do they ship the physical money to the account of Kroger when I buy groceries? No, just more number transfers across the internet. The first one is actually a yes, but I do wonder whether they have the physical cash reserves to cover all of their customers, were they to remove their money simultaneously. Ron Paul asks the audience if we would prefer a box of gold buried in the ground or a box of twenties. That's a really stupid question, I'd take that box of twenties and short sell gold for when it collapses after all the rampant speculation. Why would you bury money? In addition to that, Paul seems to be saying that a pound of bricks is heavier than a pound of feathers with this example. $20,000 worth of Gold is the same value as $20,000 worth of paper money. In twenty years there's no guarantee that gold will still be valuable. There is a guarantee that the United States will still be going strong and making noise.
As a final note, a lot of the talk about gold is tied up with apocalyptic language and the fall of America. If we switched back to a gold standard and banks held gold reserves to back our currency, I'd still be fucked just as bad as when all my money was digital. There's now way I'd be able to get that gold from the bank without some serious firepower. If you're really worried about the apocalypse, buy a farm and a ton of guns and bullets, anyone comes looking to trade with gold just shoot 'em and take the gold. It's the apocalypse, ain't no rules.
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